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Let's bet on terror attacks

WASHINGTON (July 28) - The Pentagon is setting up a stock-market style system in which investors would bet on terror attacks, assassinations and other events in the Middle East. Defense officials hope to gain intelligence and useful predictions while investors who guessed right would win profits.

Two Democratic senators demanded Monday the project be stopped before investors begin registering this week. ''The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque,'' Sen. Ron Wyden, D-Ore., said.

The Pentagon office overseeing the program, called the Policy Analysis Market, said it was part of a research effort ''to investigate the broadest possible set of new ways to prevent terrorist attacks.'' It said there would be a re-evaluation before more money was committed.

The market would work this way. Investors would buy and sell futures contracts - essentially a series of predictions about what they believe might happen in the Mideast. Holders of a futures contract that came true would collect the proceeds of investors who put money into the market but predicted wrong.

A graphic on the market's Web page showed hypothetical futures contracts in which investors could trade on the likelihood that Palestinian leader Yasser Arafat would be assassinated or Jordanian King Abdullah II would be overthrown.

Although the Web site described the Policy Analysis Market as ''a market in the future of the Middle East,'' the graphic also included the possibility of a North Korea missile attack.

That graphic was apparently removed from the Web site hours after the news conference in which Wyden and fellow Democratic Sen. Byron Dorgan of North Dakota criticizing the market.

Dorgan described it as useless, offensive and ''unbelievably stupid.''

''Can you imagine if another country set up a betting parlor so that people could go in ... and bet on the assassination of an American political figure, or the overthrow of this institution or that institution?'' he said.

According to its Web site, the Policy Analysis Market would be a joint program of the Pentagon's Defense Advanced Research Projects Agency, known as DARPA, and two private companies: Net Exchange, a market technologies company, and the Economist Intelligence Unit, the business information arm of the publisher of The Economist magazine.

DARPA has received strong criticism from Congress for its Terrorism Information Awareness program, a computerized surveillance program that has raised privacy concerns. Wyden said the Policy Analysis Market is under retired Adm. John Poindexter, the head of the Terrorism Information Awareness program and, in the 1980s, a key figure in the Iran-Contra scandal.

In its statement Monday, DARPA said that markets offer efficient, effective and timely methods for collecting ''dispersed and even hidden information. Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions.''

The description of the market on its Web site makes it appear similar to a computer-based commodities market. Contracts would be available based on economic health, civil stability, military disposition and U.S. economic and military involvement in Egypt, Iran, Iraq, Israel, Jordan, Saudi Arabia, Syria and Turkey.

Contracts would also be available on ''global economic and conflict indicators'' and specific events, for example U.S. recognition of a Palestinian state.

Traders who believe an event will occur can buy a futures contract. Those who believe the event is unlikely can try to sell a contract. The Web site does not address how much money investors would be likely to put into the market but says analysts would be motivated by the ''prospect of profit and at pain of loss'' to make accurate predictions.

Registration would begin Friday with trading beginning Oct. 1. The market would initially be limited to 1,000 traders, increasing to at least 10,000 by Jan. 1.

The Web site says government agencies will not be allowed to participate and will not have access to the identities or funds of traders.

The market is a project of a DARPA division called FutureMAP, or ''Futures Markets Applied to Prediction.'' FutureMAP is trying to develop programs that would allow the Defense Department to use market forces to predict future events, according to its Web site.

''The rapid reaction of markets to knowledge held by only a few participants may provide an early warning system to avoid surprise,'' it said.

It said the markets must offer ''compensation that is ethically and legally satisfactory to all sectors involved, while remaining attractive enough to ensure full and continuous participation of individual parties.''

Dorgan and Wyden released a letter to Poindexter calling for an immediate end to the program. They noted a May 20 report to lawmakers that cited the possibility of using market forces to predict whether terrorists would attack Israel with biological weapons.

''Surely such a threat should be met with intelligence gathering of the highest quality - not by putting the question to individuals betting on an Internet Web site,'' they said.

Wyden said $600,000 has been spent on the program so far and the Pentagon plans to spend an additional $149,000 this year. The Pentagon has requested $3 million for the program for next year and $5 million for the following year.

Wyden said the Senate version of next year's defense spending bill would cut off money for the program, but the House version would fund it. The two versions will have to be reconciled.